Namibian Competition Commission Seeks N$ 51 million penalty imposed on Namib Mills for Abuse of Dominance

By Sr. Contributor Michael-James Currie

The Namibian Competition Commission (NaCC) recently referred Namib Mills to the Windhoek High Court for the imposition of a N$ 51 million (approx. USD 3.5 million) administrative penalty following the NaCC’s finding that Namib Mills has abused its dominance in the market by contractually requiring 54 bakeries to exclusively procure flour from Namib Mills.

In terms of the contractual arrangements, Namib Mills loaned capital to the bakeries for, inter alia, purchasing baking equipment. The tying provisions in the contractual arrangements at the heart of the dispute essentially preclude the respective bakeries from acquiring flour from any flour supplier other than Namib Mills for a period of 5 years. Any breach of this provision enables Namib Mills from calling for the immediate repayment of the loan amount in full (including repossessing the baking equipment if required).

The NaCC has alleged that this contractual restriction precludes other flour suppliers from entering into the market due to Namib Mills’ high market share.

The penalty which the NaCC has requested the High Court impose translates to approximately 2.6% of Namib Mill’s turnover for the previous financial year.

The case is unlikely to be finalised this year. It will, however, be a landmark judgment in relation to the assessment of the abuse of dominance provisions in terms of the Namibian Competition Act (Act).

namibmillsAndreas Stargard, an antitrust attorney with Primerio Ltd. points out that, to date, there has been a “dearth of precedent in Namibia relating to the manner in which the provisions of section 24 of the Act should be interpreted and specifically what thresholds and criteria the authorities should consider in determining whether a dominant firm has in fact ‘abused’ its dominance or monopolised any relevant market.”  He notes that the company is in fact the largest grain processor in Namibia, with a reported market share of well above 60%, a fact that will “almost certainly play a determinative role in the ultimate decision in the matter.  Foreclosure of rivals, which is clearly the main theory of harm here, requires a degree of market power that the NaCC appears to have found exists in this market, and a two-thirds share is generally accepted in antitrust law as sufficient to establish a risk of foreclosure, when taken together with anti-competitive acts, such as those alleged by the Commission here.”

Unlike its South African counterpart, the Namibian Competition Act does not clearly permit for a rule of reason defence for abuse of dominance conduct (unless specifically excluded, the South African Competition Act does permit for a rule of reason defence). In other words, it is not clear to what extent a complainant must demonstrate actual anti-competitive effects (i.e. foreclosure or consumer welfare effects) and whether pro-competitive, technology or other efficiency arguments are taken into consideration. Furthermore, as John Oxenham, director of Primerio points out, “it is also not clear who bears the onus and what level of proof is required to make a successful showing of an anti-competitive effect”.

Section 24 of the Act expressly prohibits dominants firms from:

  • directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions; or
  • limiting or restricting production, market outlets or market access, investment, technical development or technological progress

Without a clear framework in place, the abuse of dominance provisions could be extremely far reaching. For instance, a dominant firm would clearly need to, from time to time, place certain restrictions on third parties, particularly if the dominant firm has invested or assumed a certain amount of risk on behalf of that third party. Ensuring that a firm is able to safeguard and recoup its investment is inherently pro-competitive as this ensure continuous investment which brings with it innovation, better quality and ultimately lower prices for consumers.

In terms of the broad wording of the Act, however, a key challenge which the authorities face is assessing where one draws the line between exclusionary conduct which is justified by rule of reason arguments and at what point such exclusionary practices constitutes an abuse.

As a general observation, Andreas Stargard notes that “abuse of dominance cases are particularly challenging from an evidentiary point of view and typically require robust economic evidence when grappling with the various theories of harm and rule of reason justifications”.

Accordingly, a further difficulty which both Namib Mills and the NaCC face is that to the extent the High Court permits evidence to be led demonstrating the pro versus anti-competitive effects of the alleged conduct, the High Court may not be best placed to assess the evidence.

Regardless, the outcome of this case will be likely have far reaching consequences for firms who may be considered to be dominant in the Namibian market.

 

[Michael-James Currie is a practicing competition lawyer assisting clients with competition related matters in a number of African jurisdictions. Should you wish to contact Michael-James or any of the AAT contributors, kindly contact us at editor@africanantitrust.com and the AAT team will put you in touch with the relevant individuals]

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South Africa: Competition Commission publishes its Draft Guidelines for the Determination of Administrative Penalties for Prohibited Practices  

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It in what AAT regards as a highly commendable step, the South African Competition Commission (“Commission“)  has recognised that there has been a need voiced by the Competition Tribunal (“Tribunal”), the Competition Appeal Court (“CAC”) and corporate South Africa for the Commission to develop guidelines for determining administrative penalties.

The Commission has published Guidelines for the Determination of Administrative Penalties for Prohibited Practices (“November Guidelines”), which set out  a proposed methodology which the Commission will (consistently) follow when concluding consent agreements, settlement agreements and when recommending an administrative penalty in a complaint referral before the Tribunal.  The Commission’s methodology is nothing new, it is based on the Tribunal’s six-step approach set out in Competition Commission v. Aveng (Africa) Limited t/a Steeledale, Reinforcing Mesh Solutions (Pty) Ltd, Vulcania Reinforcing (Pty) Ltd and BRC Mesh Reinforcing (Pty) Ltd  and confirmed by the CAC in Reinforcing Mesh Solutions (Pty) Ltd and Vulcania Reinforcing (Pty) Ltd v. Competition Commission.  However, the Commission has now listed factors, which are not explicitly included in the Competition Act, which should be taken into account, such as whether the firm has in any way delayed, obstructed, and/or assisted in expediting the investigation and litigation process and the Commission is also proposing an elaboration of the factors provided for in the Competition Act.  One such example is section 59(3)(c), which deals with the behaviour of the firm in the market during the period of the contravention.  In the November Guidelines, the Commission has provided a list of factors to be taken into account, such as the involvement of directors and/or senior management in the contravention and the firm’s encouragement of staff to participate in the contraventions for example. through personal incentives linked to the success of the contravention.  In addition, the Commission has proposed in its November Guidelines, that it “may impute liability for payment of the final administrative penalty on a holding company (parent company) where its subsidiary has been found to have contravened the Act.

 The November Guidelines have been made available to the public for comment by Friday, 30 January 2015.  Written comments on the guidelines can be e-mailed to: NellyS@compcom.co.za.